Public-private partnerships catch on in real estate
Dallas Business Journal Blog
June 23, 2012
The 1,001-room, city-owned Omni Dallas Hotel has changed the skyline in downtown Dallas.
And it won't be the last project of its kind to have a significant impact on Texas cities.
The Texas Legislature passed a bill in the 2011 regular session that will help public agencies find a private revenue stream through state and federal laws to fund public projects. That revenue stream would come from a credit worthy development team that would finance the project.
Those partnerships — which are called P3s for short — have brought projects such as the Omni Dallas Hotel, Cowboys Stadium and the expansion of Love Field from the planning stages into reality, said Robert Bass, an Austin-based lawyer and shareholder of Winstead PC .
"There were ways of going about doing it in the past, but the statute that the legislation passed in this last session makes it a whole lot easier for state government to build projects with private financing," Bass said. "This allows private developers to come in and help build joint private and public use projects."
It also means Texas real estate lawyers are seeing more of this type of work. With an estimated $10 billion of eligible public-private partnership projects in some stage of planning or design — but waiting for funding — there could be numerous projects moving forward in the future, officials said.
Some of those projects include the Lone Star Rail, the Cotton Belt, various university projects or the Travis County courthouse in downtown Austin.
The proposed Travis County courthouse could be developed into an office tower by a private developer, with multiple floors of retail devoted to retail and private-sector offices that would help fund the public project, Bass said.
"This is a big growth area for construction moving forward," he said.
The new statute is an important part of moving development forward — and looks beyond the traditional debt structure of a project, said Rodney Moss, a Dallas lawyer and senior vice president at Balfour Beatty Construction in Dallas.
"Anything that has a revenue stream that can be captured within a project, which could service the debt will help the project move forward," Moss said.
Projects such as dorms, power plants, stadiums or hotels each have a revenue stream that can fund the development after the project is built, he said.
But finding that revenue stream isn't always easy, he said.
Take, for example, finding a reliable revenue stream for the proposed Cotton Belt line, which would run about 62 miles from southwest Fort Worth to Plano, including stops to Dallas/Fort Worth International Airport, Moss said. Even though the project's funding is still being discussed, it will likely be structured as a P3, he said.
"There is appetite for development beyond what can be financed with more traditional public debt," he said.
P3s have been helpful in funding numerous projects that would otherwise go unfunded, including such projects as the Mercantile, Joule hotel and Main Street Garden in downtown Dallas, said Bob Voelker
, a lawyer and shareholder with Dallas-based Munsch Hardt Kopf & Harr PC.
"These projects that have been a catalyst for affordable housing and renovation in downtown Dallas," Voelker said. "Without these projects, these old buildings would be left to rot, which is not a good answer."
Even though Dallas has seen success with public-private partnerships, it's not the end-all answer to fund every project, he said.
The next big funding mechanism? The EB-5, or the Immigrant Investor Program, he said.
The EB-5 program encourages investment from outside the United States in the country's commercial real estate, allowing foreign nationals a green card in exchange for that investment.
"This brings in people from outside the country willing to make investments and helps plug the gaps of financing," Voelker said.